GrooveVC Community Update – September

September 7, 2011 at 4:18 am 1 comment

Atrinsic reported its Q2 results since our last update. It appears that our assessment of the situation at ATRN was correct, as the numbers reported were less than encouraging, particularly the decline in subscribers for the Kazaa service. The financials were equally discouraging in that the company experienced declines in revenue for both operating segments and it was apparent that the company will have to do an equity placement in the near future. Given the extremely volatile equity markets, this may be a much more difficult endeavor than if the company would have gone to market for a significant raise back in March. Additionally, we believe that the company’s inability to close the Kazaa deal in the time frame initially put forth by management last year has resulted in several extraordinary missed opportunities that could have the company in a very different place today than where they find themselves – a place where management has indicated that they expect subscriber numbers to fall further and they are needing to sell stock at a time when the marketplace is in such turmoil. As is often the case, timing is everything and we believe that Atrinsic has possibly missed the boat on what could have been an extraordinary opportunity with Kazaa.

Even as we turned negative on the company for all the reasons we have discussed (primarily missing the oppportunity to generate buzz for the new Kazaa service and not raising money when the marketplace was more conducive), we still recognize that the small number of shares in the public float and the remarkably high short interest could lead to an explosive situation where a short squeeze causes the stock to move dramatically higher. This imbalance continues to grow with the short interest reported last week now up to 758,854 which represents what we believe is a majority of the free float. Also, the true short interest is likely much higher given that the stock was on the Nasdaq’s SHO threshhold list for 12 consecutive days, meaning that there is a significant amount of naked short selling that is not represented in that 758,000 share reported figure. Given the right catalyst, the shares could still make an epic move higher and the potential for this is likely what has kept many traders interested in the stock.

Thanks for the many suggestions we have received for a new focus stock. Many of you have provided good recommendations along with a strong case for our consideration. Each submission has been true to our mission of finding companies whose financial results can be materially impacted by the incremental consumption and incremental investment of hundreds (or thousands) of “engaged” consumer/investors who not only invest and consume, but create a “buzz” among their social and/or professional networks. We will announce the new focus stock over the next 2 – 3 weeks when our due diligence is complete. Stay tuned! Thanks again for being a part of the GrooveVC community!

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Update on ATRN, VTRO & Time for New Focus Stock Recs Time to Buy Vertro Again

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